Mortgage Blog
Your mortgage journey starts now!
Why a Lower Interest Rate Doesn’t Always Mean You Pay Less Interest
October 2, 2025 | Posted by: Nicholas Pratile
When shopping for a mortgage, most people focus on one thing: the interest rate. It feels like the deciding factor—after all, a lower rate means less interest, right?
Not always.
What many homeowners don’t realize is that the fine print, the lender, and the mortgage terms can have a bigger impact on the total cost of borrowing than the interest rate itself. One of the biggest hidden costs?
Penalties for breaking your mortgage early.
The Penalty Problem
Life happens. You might need to move, refinance, access equity, or change lenders before your term is up. When that happens, your lender will charge a penalty fee—and the calculation can vary dramatically between lenders.
This is where people get caught off guard. The penalty at a Big 5 Bank can be thousands of dollars higher than a lender like First National a mono lender, even if the rate looks almost the same.
Example: Big 5 Banks vs First National
Let’s say you have a $500,000 mortgage with a 5-year fixed rate at 2.79% and you need to break it after 3 years:
- Big 5 Banks:
- Often use the posted rate (for example 5.19%) instead of your actual discounted rate.
- This inflates the Interest Rate Differential (IRD).
- Penalty could easily be $15,000 – $18,000.
- First National (Monoline Lender):
- Uses your actual contract rate for IRD.
- Penalty is much more reasonable.
- Penalty could be closer to $6,000 – $7,000.
Difference: You could save $10,000 or more simply by choosing the right lender, even if the rate itself looks almost identical.
Why This Matters
Over 60% of Canadians break their mortgage before the 5-year term is up.
That means penalties aren’t a “what if” scenario—they’re a real cost most homeowners will face.
So when comparing mortgages:
✅ Don’t just look at the rate.
✅ Ask how penalties are calculated.
✅ Understand the flexibility and features of the mortgage.
Bottom Line
A lower rate is attractive, but it doesn’t always equal a lower overall cost. Choosing the right mortgage means balancing rate, flexibility, and penalties.
That’s where I come in. My role is to help you compare lenders—like the Big 5 Banks and ALL other lenders—and find the mortgage that saves you the most money in the long run, not just on paper.
Book a Consultation: Schedule an Appointment
Email: info@mortgageswithnicholas.com
Website: mortgageswithnicholas.com
Facebook: Mortgages with Nicholas
Instagram:@mortgageswithnicholas
#mortgagebroker #mortgageadvice #homebuying #mortgagetips #canadianmortgage #mortgagepenalties #Big5Banks #FirstNational #mortgageswithnicholas